BLOG: New scenarios for 2022 Eurozone and UK PE growth as inflation and debt pressures build

John Richardson

09-May-2022

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson.

The cost of living crisis in the developed world, and today we use the example of the Eurozone and the UK, is so severe that even single-use polyethylene (PE) demand is a risk.

Even before the Ukraine-Russia conflict, PE consumption was facing downward pressure as we moved from the pandemic to the endemic phase of coronavirus. Now, as interest rates rise at a time of worrying levels of public and private debt, we have to consider extent to which governments will be able to provide support for lower-paid workers who are under great pressure to cut back on their grocery spending.

We thus need scenarios for demand to enable the industry to better plan for an incredibly uncertain future. The blog has never known market analysis as complex as this:

    • The ICIS Supply & Demand Base Case growth for Eurozone and UK PE demand in 2022 over last year is 1%. I see this outcome as likely if the Eurozone and the UK can offset rocketing inflation through significant support for lower-paid workers. This will largely counteract the loss of tonnes resulting from the endemic phase of coronavirus.
    • Downside 1 envisages limited wiggle room for extra fiscal spending on rising interest rates and further upward pressures on inflation. Here, consumption contracts by 4%.
    • The worst-case outcome, Downside 2, would see demand falling by 7% on full-blown stagflation and a debt crisis as much- higher interest rates make debt costs unserviceable. The worst-case outcome leaves demand around 900,000 tonnes lower than 2021 and a million tonnes lower than our Base Case for 2022.

Balanced against this should be the possibility that Eurozone and UK demand for imports will be higher than expected because of reduced purchases of Russian oil, naphtha and natural gas.

The decisions that PE exporters make from hereon in will be critical. Every tonne they produce and allocate to the region where the demand is, will of course make them money. And in a time of volatile and high feedstock costs, every tonne they don’t produce, when they correctly assess that the demand isn’t there in a particular market, will be important in preserving cashflow. Cash might be about to become king again, as in 2008-2009.

Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.

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